Tax credits and early years e-bulletin October 2018 | CPAG

Tax credits and early years e-bulletin October 2018

22 October 2018

The government has closed the employer childcare voucher scheme to new applicants after 4 October 2018. People who joined a childcare voucher scheme or a directly contracted childcare scheme on or before 4 October 2018 can keep getting vouchers or directly contracted childcare as long as their wages were adjusted on or before 4 October 2018, and they stay with the same employer and do not take an unpaid career break of longer than a year.

New applicants looking for help with childcare costs in work may be directed to the new Tax-free Childcare scheme, but should always get advice to check whether they would be better off getting help with childcare by staying on tax credits or claiming universal credit instead. Applying for Tax-free Childcare causes the whole of an existing tax credits award to be automatically terminated, and it is not possible to get Tax-free Childcare payments while entitled to any universal credit.


This section summarises recent decisions of the Upper Tribunal; these set a binding precedent on HMRC or DWP decision-makers and First–tier Tribunals in similar cases.

Termination of tax credits award when universal credit is claimed

This case examined what happens when a tax credit claimant mistakenly makes a claim for universal credit. Under transitional provisions, the tax credits award is terminated if the Secretary of State is satisfied that the claimant meets the basic conditions for universal credit, not including accepting a claimant commitment and without regard to meeting the financial conditions. In this case, the tax credits award was terminated when the DWP notified HMRC by way of a stop notice. The claimants withdrew their UC claim before the end of the first assessment period when they realised their mistake, so were never actually entitled to UC. They appealed against the decision to terminate their tax credits. The First-tier Tribunal found that there was no evidence that the Secretary of State (i.e. a DWP decision maker acting on her behalf) was satisfied that the basic conditions for universal credit regarding age, residence and education had been met. The First-tier Tribunal allowed the claimant’s appeal, which would have reinstated tax credits, but HMRC appealed to the Upper Tribunal. Judge Jacobs found that some evidence was needed to link the stop notice to the Secretary of State being satisfied about the basic conditions. HMRC provided an explanation of the system that led to the stop notice being issued and Judge Jacobs decided the decision to terminate tax credits was correct. He goes on to raise the possibility that the claimants may have been able to protect themselves by withdrawing the UC claim before the stop notice was issued. This decision serves as a warning to tax credits claimants that claiming UC could leave them with no tax credits and no UC either, as in this case.

Read the decision in full: HMRC v LH [2018] UKUT 306

Competing claims

This case concerns competing claims for child tax credit by separated parents, sharing responsibility for a child on a 50/50 basis. The law is clear that only one of completing claimants can be entitled to CTC in this case, and it must be decided which one has main responsibility. In this case, the mother was first entitled, and then the father made a competing claim which was awarded, and HMRC terminated the mother’s award. She appealed to the First-tier Tribunal successfully, and her award was reinstated for the whole of the tax year. The father then appealed this decision to the Upper Tribunal. However, during this process, it emerged that HMRC had confirmed the father’s entitlement for the same period. Judge Wikeley unravels this case and finds that although HMRC’s original decision and the First-tier Tribunal decision were both flawed, there would be no benefit to any of the parties in setting aside the decision. HMRC has apparently given effect to separate decisions which mean that both parents have been found to be entitled to CTC in respect of the same child for the same period. He describes this as a pragmatic approach, given the conflict-ridden history of the proceedings, and notes that HMRC has been prepared to countenance parallel payments in other cases. He allows the father’s appeal but uses the power not to set aside the First-tier Tribunal decision. This case demonstrates that where HMRC has mistakenly paid two competing claimants for the same child over the same period, a tribunal should decide who had main responsibility, but it does not necessarily follow that an overpayment should be recovered.

Read the decision in full: AG v HMRC & AG [2018] UKUT 318


The Budget 2018 included changes to universal credit that will affect some families with children:

Children in non-parental care or adopted children to be ignored for the purposes of the two child limit from November 2018. It is not yet clear whether claimants who have been denied a child element for a baby born since 6 April 2017 in this situation will be entitled to the child element from the date of the child’s birth. See our August 2018 e-bulletin for more details.

From January 2019, people who receive the severe disability premium in existing benefits will not be able to claim universal credit. It follows, as we understand it, that if they become responsible for a child they will be able to claim child tax credit.

Increase to work allowance from April 2019 by £1,000 a year. The work allowance is the amount a claimant can earn before their universal credit is reduced. For claimants with children, or who have been assessed as having limited capability for work, the work allowance is currently £198 a month for claimants who have housing costs included, or £409 a month for those who do not pay rent. The increase as announced works out as an extra £83.33 a month that claimants can earn before losing universal credit. Someone already earning £1,000 a year over their work allowance would currently see their UC reduced by 63% of their earned income, so would be £630 a year better off as result of this change. It could also means some families whose earnings are currently too high to get UC could become eligible. Claimants currently on tax credits should get a detailed benefit check before claiming UC as they could still be worse off.

From July 2019, tax credits claimants with capital over £16,000 (who would not otherwise be eligible for UC) will have their capital over £16,000 ignored for 12 months from the point at which they are moved onto UC.

From July 2020, income support, income-based jobseeker’s allowance, and income-related employment and support allowance claimants will continue to receive support for a fortnight during their move to UC. No such run-on has been announced for tax credit claimants.

The process of moving people to UC from the existing benefit system will start in January 2020 and end in June 2024.

See Budget 2018 documents